Working Capital Management
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International Journal of Business and Management
Vol. 6, No. 9; September 2011
Effective Working Capital Management in Small and Medium Scale Enterprises (SMEs)
Kehinde James Sunday Dept of Accounting and Finance, Lagos State University Ojo, Nigeria E-mail: pastorkehindebox@yahoo.com Received: November 15, 2010 Accepted: August 10, 2011 doi:10.5539/ijbm.v6n9p271
Abstract The need to main effective working capital management within Small and Medium Scale Enterprises (SMEs) remain pivotal to solvency and liquidity of SMES. Most SMES do not care about their working capital position, most have only little regard for their working capital position and most do not even have standard credit policy. Many do not care about their financial position, they only run business, and they mostly focus on cash receipt and what their bank account position is. For the purpose of this study, Standard working capital ratios were used to measure the effectiveness of working capital in the selected firms. The firms selected show signs of overtrading and illiquidity, concerns was on profit maximization without taken cognizance of payment of creditors. The firms exhibit low debt recovery over credit payment. It is recommended that for SMEs to survive within Nigeria economy they must design a standard credit policy and ensure good financial report and control system. They must give adequate cognizance to the management of their working capital to ensure continuity, growth and solvency. Keywords: Small and medium scale enterprises (SMEs), Working capital management, Liquidity, Solvency 1. Introduction The Small and Medium Scale (SME) business remain the most dynamic force and agent of economic growth and development of a nation. The small and medium scale enterprises generates at least 60% of the USA GDP (Ovia, 2001) In Nigeria, the SMEs are all around us, the fact that only few amount is required to start an SMEs make it the most popular term of business.
International Journal of Business and Management
Vol. 6, No. 9; September 2011
Effective Working Capital Management in Small and Medium Scale Enterprises (SMEs)
Kehinde James Sunday Dept of Accounting and Finance, Lagos State University Ojo, Nigeria E-mail: pastorkehindebox@yahoo.com Received: November 15, 2010 Accepted: August 10, 2011 doi:10.5539/ijbm.v6n9p271
Abstract The need to main effective working capital management within Small and Medium Scale Enterprises (SMEs) remain pivotal to solvency and liquidity of SMES. Most SMES do not care about their working capital position, most have only little regard for their working capital position and most do not even have standard credit policy. Many do not care about their financial position, they only run business, and they mostly focus on cash receipt and what their bank account position is. For the purpose of this study, Standard working capital ratios were used to measure the effectiveness of working capital in the selected firms. The firms selected show signs of overtrading and illiquidity, concerns was on profit maximization without taken cognizance of payment of creditors. The firms exhibit low debt recovery over credit payment. It is recommended that for SMEs to survive within Nigeria economy they must design a standard credit policy and ensure good financial report and control system. They must give adequate cognizance to the management of their working capital to ensure continuity, growth and solvency. Keywords: Small and medium scale enterprises (SMEs), Working capital management, Liquidity, Solvency 1. Introduction The Small and Medium Scale (SME) business remain the most dynamic force and agent of economic growth and development of a nation. The small and medium scale enterprises generates at least 60% of the USA GDP (Ovia, 2001) In Nigeria, the SMEs are all around us, the fact that only few amount is required to start an SMEs make it the most popular term of business.
References: Abel. (2008). Working Capital Management; SME; Cash Holdings; Cash substitute; Cash conversion.